Under which scenario is negative amortization likely to occur?

Question

Quizplus · Accepted Answer

Negative amortization is likely to occur when the borrower makes payments that are lower than the interest due on the loan. This can happen with an adjustable-rate mortgage (ARM), particularly when the interest rate increases and the borrower's monthly payment does not adjust high enough to cover the interest. Option C shows an ARM with a low initial rate that could increase over time, leading to negative amortization.

Under Which Scenario Is Negative Amortization Likely to Occur